Tuesday, December 11, 2007

McDonald's: All About Coffee

As McDonald's continues to post quarter after quarter of impressive growth, one has to wonder just how long it will be before executives at Starbucks (SBUX) "consider the competition".

McDonald’s (MCD) announced Mo day that global comparable sales rose 8.2% for the month and 7.0% for YTD November. Systemwide sales for McDonald’s restaurants worldwide increased 16.3% in November, or 9.6% in constant currencies.

In the U.S., comparable sales increased 4.4% for the month as consumers continue to enjoy McDonald’s Premium Roast coffee and breakfast menu selections, compelling Dollar Menu options and convenient restaurant operating hours.

McDonald's Chief Executive Officer Jim Skinner said, "McDonald’s commitment to evolve the restaurant experience to achieve even greater customer relevance continues to deliver results. Again in November, each area of the world contributed to our strong top-line performance."

People out there are indeed fearful of the economy. We can debate whether of not that fear is warranted all day but this simple fact is they are. When they feel that way the first thing that gets cut are the luxuries that are easily replaceable. Starbucks coffee fits the bill perfectly.

When you consider how many households have their own cappuccino machines or "K" cup coffee systems, a $5 plus beverage is going to be passed on. When you consider I can get one a McDonald's for $2, or, make it myself for about 60 cents, the $5 purchase just will not be made. Judging from results at Starbucks recently, there are ton of folks out there that feel the same way.

Starbucks shares have seemingly bottomed at $23, down from near $40 earlier in the year. Seemingly is the key word. Should Starbucks not impress with results in the current quarter when people are gift giving and in a spending mood, the outlook is indeed dire and shares will fall further...

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